The Brunner Investment Trust PLC – May 2017

Welcome to the latest update for The Brunner Investment Trust PLC from the Trust’s portfolio manager, Lucy Macdonald.

Market review
Global equities spent most of April going sideways, but finished the month on a strong note after the first round of the French presidential election increased the probability of a pro-Europe outcome.

European equities performed the best, buoyed by further signs of improvement in the Eurozone economy, with emerging market equities a close second. This was positive for the portfolio, which is overweight both.

In the US, economic activity slowed to an annualized rate of 0.7%, down from 2.1% in the previous quarter and the slowest quarterly reading in three years. UK economic growth also slowed in the first quarter, recording its lowest quarterly gain in a year, due to lower consumer spending. In contrast, euro-zone data releases signalled that economic activity was near a six-year high.

The US dollar weakened over April, as investors anticipated that recent weaker-than-forecast economic data would prompt the Fed to keep rates on hold in June. In contrast, the euro and British pound strengthened, helped primarily by political developments.

Portfolio review
The Trust’s NAV returned -0.9% against the benchmark return of -1.4%. The portfolio also outperformed the benchmark in April, with stock selection as the main driver. The overweight and stock selection in Industrials had the most positive impact to performance, with Balfour Beatty, Senior, Howden Joinery Group and Tyman among the top contributors. Stock selection in Financials was also positive and, from a country perspective, stock selection in the US and UK helped.

Equiniti Group was the top contributor after the company delivered positive FY17 results in line with expectations. The company has added a number of new clients as well as retaining all of its existing mandates. Although these new accounts are likely to make a limited contribution in the current year, the potential upside from cross-selling should support growth in the medium term. We also believe Equiniti can continue to deliver good growth through its shift to margin-accretive software solution revenues despite nearterm macro headwinds affecting organic growth.

We reduced our exposure to the Energy sector in the first quarter and the underweight in the sector was positive to performance in April. EOG Resources detracted, reflecting the overall fall in oil prices. While rising tensions in the Middle East helped oil prices to strengthen at the beginning of April, higher US inventories later caused them to retreat once more, with West Texas Intermediate ending the month back below USD 50 a barrel. EOG has grown mostly through internally generated projects over the last 5 years, only recently announcing their acquisition of Yates Petroleum. Given the potential of its portfolio, we still see EOG as a compelling investment.

Outlook
Expectations of continued economic growth and rising inflation should support equities. However, the inflationary effect from the year-on-year increase in oil prices is likely to peter out and growth is unlikely to accelerate in the coming months. Equity prices should be more muted, particularly since valuations appear stretched in some markets and political uncertainty continues.

US equity prices are supported by healthy macro data, particularly for the labour market. However, the economic cycle is already at an advanced stage. In the euro area, the economic recovery is continuing despite political challenges.

Overall, sentiment indicators point to a solid expansion in the second quarter. However, the probability of further positive surprises is declining. The emerging markets look set to experience a moderate pick-up in growth thanks to still loose monetary and fiscal policies in China and the economic stabilisation in Brazil and Russia.

Our investment approach of investing in high return, reasonably valued, secular growth companies that can sustainably grow earnings and dividends remains well-placed to generate long-term outperformance.

For the latest portfolio breakdown, performance, dividend information, please visit www.brunner.co.uk.

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Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.

The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation and anyone who acts on it, or changes their opinion thereon, does so entirely at their own risk. The opinions expressed are based on information which we believe to be accurate and reliable, however, these opinions may change without notice. Past performance is not a reliable indicator of future results. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. An investment trust’s shares may trade below (at a discount to) or above (at a premium to) the underlying net asset value. This email, its contents and any files transmitted with it are intended solely for the addressee(s) and may be legally privileged and/or confidential. If you have received this email in error please delete it and contact the sender via the switchboard on +44 (0)20 7859 9000 or via return email. You should not copy or forward it on or otherwise use the contents, attachments or information in any way. Any such unauthorised use or disclosure may be unlawful. Allianz Global Investors give no warranty as to the security, accuracy or completeness of this email and accept no responsibility for changes made to this email, after it was sent. Any liability for viruses is excluded to the fullest extent permitted by law. Any opinion expressed in this email may be personal to the sender and may not necessarily reflect the opinion of Allianz Global Investors.

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